FINAL EXAM REVIEW (Ch. 3)

Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per year, and a worker in Sylvania can produce either 2 units of corn or 6 units of wheat per year. Each nation has 10 workers. For many years the two countries traded, each completely specializing according to their respective comparative advantages. Now, however, war has broken out between them and all trade has stopped. Without trade, Freedonia produces and consumes 30 units of corn and 10 units of wheat per year. Sylvania produces and consumes 10 units of corn and 30 units of wheat. The war has caused the combined yearly output of the two countries to decline by

20 units of corn and 20 units of wheat

Assume for Brazil that the opportunity cost of each cashew is 100 peanuts. Which of these pairs of points could be on Brazil's production possibilities frontier?

200 cashews, 30,000 peanuts 150 cashews, 35,000 peanuts

Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per year, and a worker in Sylvania can produce either 2 units of corn or 6 units of wheat per year. Each nation has 10 workers. Without trade, Freedonia produces and consumes 30 units of corn and 10 units of wheat per year. Sylvania produces and consumes 10 units of corn and 30 units of wheat. Suppose that trade is then initiated between the two countries, and Freedonia sends 30 units of corn to Sylvania in exchange for 30 units of wheat. Sylvania will now be able to consume a maximum of

30 units of corn and 30 units of wheat

Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 chair is

6 chairs for Ken and 3 chairs for Traci

Tom Brady should pay someone else to mow his lawn instead of mowing it himself, unless

Brady has a comparative advantage over everyone else in mowing his lawn.

By definition, exports are

goods produced domestically and sold abroad

For two individuals who engage in the same two productive activities, it is impossible for one of the two individuals to

have a comparative advantage in both activities.

Absolute advantage is found by comparing different producers'

input requirements per unit of output

Comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

absolute advantage

the ability to produce a good using fewer inputs than another producer

When a country has a comparative advantage in producing a certain good,

the country should import that good

A production possibilities frontier is a straight line when

the rate of tradeoff between the two goods being produced is constant.

Suppose there are only two people in the world. Each person's production possibilities frontier also represents his or her consumption possibilities when

they choose not to trade with one another.

Opportunity cost

whatever must be given up to obtain some item